I have not traded the spot market, but also had to do the same thinking. My conclusion was -- if I'm trading actively, I'd rather pay a 1 pip spread on the CME, plus a $2.50 commish, then always pay a 3 pip spread...

The one advantage to trading the spot FX market is you can earn interest on open long positions, in most of the major crosses. I don't like to short so this works for me. I also don't like in and out trading. I like to catch a trend and ride it, all the time earning interest along with profiting from the movement as well.

I have been trading currency futures (euro,sf,jy,cad) about a year. I decided on futures because of the spread that you pay w/forex. If you trade consistantly (1-3 trades/currency/day), the pip spreads will eat your profits. I Use IB so the commissions are low.
Good Luck
Ken

I'm currently trading currency futures and am investigating switching to Forex to reduce my transaction costs. (anywhere from $350 to $1200 per day depending on how actively I trade)

I trade futures through Refco, and they also offer commission free Forex accounts--the catch is they are making the market and get the bid/ask spread.

My question is, has any one else here traded both currency futures and Forex? How would you compare the two?

How "fair" is the market--considering you are dealing with market makers instead of directly with other traders. Another concern is that Forex is unregulated while futures are regulated.

Thanks, and I look forward to any input.

More...

If you day trade the majors and there is enough liquidity in the futures for your size, stick with the futures. Switch to forex when you can afford to trade in the interbank ($250,000 for Currenex or UBS electronic platform). If you trade crosses you have to do forex. If you position trade you may want to try retail forex. One advantage of forex is that it is open 24 hrs during the week so that you are not exposed to gap openings when Globex reopens. I have done both and have tried several retail forex brokers and while the best are not bad, futures are still better. If you go retail forex and have an account of enough size to justify it, get EBS data to see how out of line your broker is taking it.

If you think about it, the futures price has the cost of carry built in. If you trade OTC, you have to roll the position over if you keep it open and sometimes that will be in your favour (ie long EUR vs USD) and sometimes against you (ie long USD vs EUR). Oanda (www.oanda.com) pays realtime (!) interest if you want to earn even intraday pips by buying high yielders.

Most of the prices available now, whether OTC or CME, are effectively coming from the same sources. Of course, trading OTC means that the market maker could shade a price against you, but transparency is much better than it used to be.

Many futures houses also offer EFPs, so you can open on an exchange and close out OTC or vice versa. That was very important 2 or 3 years ago when CME liquidity sucked, but it's probably not such an issue now.